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Author: Michaelzehr Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308519  
Subject: Re: Lower minimum payment Date: 6/19/2002 1:28 PM
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Greetings, Mark0Young, because of compounding I would think that it may be better to pay at least the monthly interest charge as a minimum payment on any of the outstanding debts a person has. Otherwise, even as the snowball dollars are rolling over a higher interest debt, the debts waiting their turn won't get any bigger than they have to due to interest owed on interest.

If a LOW interest rate card has a minimum set below the monthly interest and you have a card with a HIGHER interest rate, then paying just the minimum on the first card and applying the rest to the higher interest rate card is like getting a no-cost balance transfer from the higher interest rate to the lower.

While it's true that the extra $ on the lower rate card will compound interest, the $ on the higher rate card that you didn't pay off will compound interest even faster.

What matters is the total debt and the average interest rate[*], not whether each individual balance is going up or down.

Michael

[*] as already pointed out by someone else you have to keep under the credit limit on the lower rate.

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